Lush has strong 2017 but slower growth will dent 2018 profits

By

Sandra Halliday

Published
Apr 9, 2018

Ethical beauty brand Lush expects its profits to fall this year as growth continues but at a slower pace in a tough market. 

Yet its last fiscal year, the 12 months to June 30, had plenty of good news. Total turnover attributable to Lush rose 26% to £497.8 million and total sales, including turnover from franchisees, rose to £743 million from £563 million. UK comparable sales rose more than 12%. Meanwhile its pre-tax profits were up an even more impressive 50% to £73.5 million.

Lush sells its handmade products in nearly 50 countries from over 900 shops, some of them franchises and joint ventures. At its Lush North America unit, retail and digital sales reached $550 million in FY2017, a 25% increase from 2016, although this is slower than the four-year average of 36% growth.

Its performance overall came despite margins being hurt by the weak pound which meant its raw materials cost it more than in previous years, denting the margin at the manufacturing subsidiary Lush Limited. 

The pound’s weakness was due to the impact of the Brexit vote and another Brexit issue that might affect it in the future is a potential labour shortage. The company said that migrants from the EU currently account for more than half of those working for it in its Poole HQ and ongoing uncertainty around Brexit is affecting them.

Staff issues aside, in the future, it plans to focus heavily on its online business as well as on its larger-sized spa shop concept for its physical stores. That strategy comes as the company faces up to the need to plan for a slower growth market.

Its comparable sales may still be well ahead of the sector as a whole but they’re slower than the firm is used to. And it has already said that the first six months of the current financial year have seen growth of just 2.6%, with this year’s predicted profits decline being the result.

And any slowdown in the US would be an issue given that this is the company’s largest market. 

That said, it still has plenty of growth potential and sales may be slowing but they’re not falling. Meanwhile, its vegetarian classification means that it can tap into one of the core growth areas for the beauty sector. Demand for vegetarian and vegan products is surging among the Millennial demographic.

And the company is expanding its manufacturing capabilities to meet demand too. It has invested heavily in a facility in Dusseldorf, which allows it to supply markets in central Europe and this should also help it get around some of the problems linked to the UK leaving the EU.